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8 Steps To Creating A Financial Plan For Yourself

8 Steps To Creating A Financial Plan For Yourself

July 19, 2022

Regardless of your age, financial situation, or where you're at in life, a financial plan to work towards your financial and life goals is essential. Financial planning outlines how your money, investments, and other assets can help you meet your financial goals. By planning now, you can set yourself and your family up for success down the road. 

While everyone's personal finances look different, here are eight steps you can follow to get started on your financial plan. 

What Is a Financial Plan?

Simply put, a financial plan is a roadmap that helps you achieve your goals. A financial plan gives a comprehensive picture of your current finances, financial goals, and any strategies you use to achieve those goals. A good financial plan should include details about your cash flow, savings, debt, investments, insurance, and any other elements of your financial life.

1. Evaluating Where You Stand Financially

Before you can plan for the future, getting a clear picture of your current financial situation is vital. This isn't to make you feel behind, anxious, or concerned about finances. Instead, a current evaluation can help you determine how to prioritize your finances and what decisions make the most sense to reach your goals. 

Start by getting a sense of your monthly cash flow, including what money is coming in and going out. An accurate picture is key to creating a financial plan and can reveal ways to direct more to savings or debt pay-down. This step is essential for seeing where your money is currently going and how you can adjust your finances to meet your future goals. 

Use our Current Cash Flow calculator 

2. Set financial goals

Step one leads us right into step two. Setting goals gives you a roadmap for where you want to go beyond the here and now. To have a sound financial plan, your plan must be guided by your financial goals. 

Your financial goals should include short-term, medium-term, and long-term benchmarks. Your goals should be inspirational and align with where you see yourself in 5, 10, and 20 years. Consider goals relating to finances, such as paying off student debt, buying a future home, adjusting vehicles to accommodate a future family, and planning for retirement – even though that may seem far away. Planning for tomorrow starts with today.  

Goals give you the drive to go from point A to point B. Therefore, your goals should motivate you to reach them and provide a clear path to where you want to go. 

3. Create a budget

With a plan and clear goals, developing a budget will ensure that your current financial life aligns with where you want to be down the road. We recommend utilizing financial planning services with a company like the team at Pathway Financial to develop a strategic budget that aligns with your goals. Once you have a plan for how to budget, executing and following that budget is where your action comes into the plan. 

Working with a local financial planner can help give you a plan for creating a budget that accommodates your current living situation, reduces debt smartly, and allows money to be set aside for essential needs. 

4. Plan for taxes

Taxes are one of life's few certainties, and no one likes giving up some of their hard-earned cash to pay in. However, with proper tax preparation, it's possible to pay less in taxes or receive a larger refund at the end of the year than the all-too-common approach of simply flying by the seat of your plants. In addition, proper tax planning makes it easier to build your personal finances and afford the things you want.

If you don't know how to make the most of your money, you will likely miss out on things like tax breaks and knowing the taxable income that an expert could help you leverage. 

5. Build an emergency fund

Emergencies happen, but ensuring your emergency doesn't become a disaster is vital. Any good financial plan should include an emergency fund to care for unforeseen expenses. You can start small and grow your fund over time. Starting with $500 on hand for when you need it is much better than having nothing at all or turning to credit cards or high-interest loans. 

6. Invest your money and build milestones

Investing sounds like something for rich people or when you're established in your career and family life, but it's not. Investing can be as simple as putting money in a 401(k) and as frictionless as opening a brokerage account (many have no minimum to get started). Investing and building milestones to aim towards can celebrate even the little wins while building your wealth for the long term. 

7. Manage your debt

When you have debt, your hard-earned money goes towards interest rates and other related costs that aren't even part of your principal amount. Managing debt should be a cornerstone of your financial plan, and aim to eliminate it as quickly as possible. With many interest rates through the roof, it's not uncommon for people to pay two or three times what they borrowed on things like credit cards, cars, and education. 

Your financial expert may suggest a debt consolidation loan or debt management plan that can help you roll serval expenses into one payment. This can also reduce the interest rate on loans and allow you to focus your money on certain areas of debt. 

8. Protect with life insurance

Working hard towards your financial goals should be celebrated, but without adequate insurance to protect your assets, years of financial planning can get erased almost instantly. A financial plan without proper life insurance is no financial plan at all. Insurance protects you and your assets from emergencies, disasters, injuries, and other damage. Especially for those who have others depending on your income, insurance is a worthwhile cost to provide peace of mind in knowing others are protected in worst-case scenarios.

Assess Your Life Insurance Needs

Planning for your future starts today

If you need a financial plan but aren't sure where to begin, you're not alone. Our friendly financial experts at Pathway Financial are here to help you understand your finances and spending habits, plan for your future and feel empowered every step of the way. 

Connect with our financial planning team today to learn more about how we can help you and your financial plans.